State leaders clear obstacles for tax cut deal

Legislators able to iron out details

AUSTIN — Top state leaders agreed on a $3.8 billion tax-cut deal Thursday that includes an estimated $126 annual break for the average homeowner from school property taxes and a big reduction for businesses.

The agreement caps long wrangling between the House and Senate over the high-profile issue of how best to cut Texans’ taxes, including a final dispute about how quickly the break for homeowners should take effect.

“Texas leaders have come together to advance conservative principles that will improve the lives of Texans and continue to make Texas the model for doing business,” said Gov. Greg Abbott, who had made the tax-cut issue a top priority.

Lt. Gov. Dan Patrick, who campaigned on property tax relief, called it “a major achievement.” House Speaker Joe Straus said the deal “will allow the House to vote on tax relief that encourages economic growth.”

The break would be effective starting with the 2015 tax year under the deal, a point important to Patrick and senators. House leaders had concerns about the cost and difficulty to local officials of speeding the change.

The announcement of the package came as lawmakers moved to finalize a state budget and other top issues before the legislative session ends June 1.

The expected tax-cut agreement still faces House and Senate approval, with a two-thirds vote required for the higher homestead exemption.

Voter approval on a state ballot also is required for homeowners to get relief.

The expected tax-cut package includes a $10,000 increase in the homestead exemption from school property taxes. The exemption currently is $15,000.

It also would cut the state business tax rate by 25 percent, accounting for nearly $2.6 billion of the package’s two-year, $3.8 billion cost.

The breakthrough in tax-cut negotiations was signaled when the House Ways and Means Committee backed a proposed constitutional amendment and accompanying bill on property-tax relief that would deliver the break in the 2015 tax year.

The election to approve the additional homestead exemption would be in November under the proposal. That sets up a tight time frame for relief that senators had said would be difficult but not impossible to accomplish.

A special September election had been considered, but county officials had estimated that would cost $13.4 million statewide.

Tax notices that go out before the November election would be worded to specify the difference in people’s bills due to the bigger homestead exemption. The notices also would say that if the proposal failed, homeowners would get a supplemental bill for the extra amount.

The expected tax-cut deal is smaller than the one initially contemplated by either the House or Senate.

Lawmakers have said uncertainty over the economy contributed to the decision to tighten up on tax relief.

Gov. Greg Abbott long has said he would reject any state budget if lawmakers didn’t back a reduction in businesses’ tax burden. He also has called for “lasting” property tax relief that isn’t overtaken by rising property valuations.

That’s because the levy is controlled locally and tax bills are affected by factors including property appraisals.

There are legislative proposals to rein in property-tax revenue.

One, for example, would require a 60 percent margin of local governing boards to approve an increase.

But counties effectively already have such a requirement with five-member commissioners courts, while school districts already face automatic rollback elections if they propose raising too much property-tax revenue.

The House initially approved a sales-tax cut instead of property-tax relief, but that idea was dropped in favor of the Senate homestead-exemption approach. The exemption is smaller than the one initially proposed by senators and Patrick.

The expected deal takes the House approach to the business-tax reduction with a big across-the-board cut. Senators had initially proposed a smaller across-the-board cut coupled with exempting more small businesses from the tax entirely.

The proposed property-tax break could be considered by the House this weekend. If approved, it would return to the Senate — which already has passed a different version of it — for consideration of House changes.

The proposed business-tax break, approved by the Senate Finance Committee, is awaiting consideration by the full Senate. If approved, it will return to the House for consideration of Senate changes.

The intense tax-cut negotiations have been carried out simultaneously with efforts to find agreement on budget differences and top issues such as border security and open carry of handguns.

Budget negotiatorsfinalized a spending plan for the next two years that is expected to total about $210 billion.

They have agreed to give public education a $1.5 billion boost in spending over enrollment growth, and they approved an $800 million border-security plan.

On transportation, they would allocate an extra $1.2 billion over the next two-year budget period that would come from ending diversions from the highway fund to other areas. The budget also includes a $2.4 billion increase in transportation funding due to voter approval of a 2014 ballot proposition directing some oil and gas production revenue that otherwise would have flowed into the rainy day fund to highways.

Peggy Fikac is Austin bureau chief and columnist for the San Antonio Express-News, delving into politics and policy in areas including the state budget, where the intersection of the two is compelling.

She covers Gov. Greg Abbott, who won the state’s top seat after a nationally noticed campaign against Wendy Davis; dug into Ted Cruz’s ascent to the U.S. Senate; covered George W. Bush as governor and during his races for president; and has bird-dogged Rick Perry’s tenure as Texas’ longest-serving governor, his White House ambitions and his indictment.

Peggy was bureau chief for the Houston Chronicle as well as the Express-News for more than five years when the two combined their Austin operations.

She previously worked for the Associated Press, where she covered the late Ann Richards during both of her campaigns for governor and specialized in public education and legislative coverage. Peggy also has been the correspondent for three Rio Grande Valley newspapers, starting as a senior at her alma mater, the University of Texas at Austin.